BCC: Evidence, not politics, must guide National Living Wage growth

The British Chambers of Commerce (BCC) today publishes a survey of businesses, which shows that just over a third of companies (34%) have had to increase their wage bills since the introduction of the National Living Wage (NLW) in April 2016.

The survey of more than 1,600 business leaders across the UK, undertaken in August 2016 and supported by Middlesex University, revealed that many companies affected by the introduction of the NLW have already changed their recruitment plans or planned to do so in the future. A quarter of affected firms (25%) have reduced recruitment in response, and 34% plan to do so if the NLW rises to £9 per hour by 2020. Others are looking at changes to staff hours, benefits or pay growth.

These changes reflect the rising cost burden on many companies. Although the majority (65%) of firms pay their staff above the NLW of £7.20 per hour and have not been affected, 25% of those that were affected have increased their wage bill slightly, and 9% have increased their wage bill significantly.

The businesses most exposed to the NLW have largely absorbed the increase in costs for now, but plan to pursue cost reduction measures if the NLW increases to £9 per hour. The BCC urges the government to use caution with future NLW increases.

Key findings in the survey:

Most businesses pay their staff above the NLW, but more than a third have increased their wage bills since it was introduced in April 2016

Of the firms whose wage bill increased because of the NLW, most have not yet made major changes, but more of these firms expect to do so if the NLW rises to £9 by 2020

Only 34% of businesses affected by the NLW raised prices to offset the cost, but 63% would do so if it rose to £9 by 2020

If the NLW increases to £9 per hour by 2020, 25% would reduce staff hours, 29% would reduce pay growth, 33% would reduce staff benefits, 34% would reduce recruitment, and 13% would make no changes

Commenting, Marcus Mason, Head of Education and Skills at the BCC, said:

“A decent wage can make a huge impact on employees’ lives and their performance at work, and most businesses are able to pay above the NLW.

“However, a significant number of firms have already had to re-balance their books to meet the cost of the NLW, which can have a knock-on effect on recruitment or growth plans. Many firms would have to change their business models, by increasing prices and reducing staff, if the NLW increases to £9 per hour by 2020.

“The government needs to take an evidence-based approach to setting the NLW. The rate should be set by the Low Pay Commission and be determined by the state of the economy, weighing up the various pressures businesses face. Further NLW increases need to be proportionate, reflecting business uncertainty, slowing growth and high input costs, to avoid having a negative effect on employment.”

“While our research has captured the current sentiments of business around the NLW, the potential rise to £9 per hour is still three years away. This means that businesses have an opportunity to adjust their strategies, as they are having to do with other initiatives such as the apprenticeships programme.

“It is important that Government supports business through these transitions so that employees in the UK can earn a fair wage for their work and businesses benefit from a satisfied and motivated workforce.”